Four buys emerge from the MIST

By Tony Crowell

The stock market continues its uneasy equilibrium. After a slow start earlier this year, the economy inched ahead this summer as employment improved slightly in some areas, while housing showed signs of life. Both exports and consumer spending were up but overall growth remained sluggish.

Since the recession ended more than three years ago, the economy has been unable to build sufficient momentum for a breakout to the upside. On the other hand, despite all the prevailing fears, it has not slid back into another recession. Inflation and interest rates remain low while growing corporate profits in most sectors have kept stock market valuations reasonable.

This uneasy truce among conflicting forces has left the U.S. economy more vulnerable to outside shocks. Last year, the earthquakes in Japan caused tragic losses there and disrupted global supply chains. Turmoil in the Middle East spiked oil prices, always another strain on most economies. The European financial morass and the looming “financial cliff” provide continuing stresses, which could be eased through rational leadership, a resource currently in limited supply.

The U.S. elections add more uncertainty. President Obama is slightly ahead in the polls and investors who might think a second term could hurt the stock market should look at the record. Stocks greeted his inauguration with a 300-point drop in the Dow Jones to below 8,000. It’s over 13,500 now, up 70% since he took office, and seems headed for a new record for a single term.

That’s no comfort for the millions of Americans out of work, presenting a major challenge to the Federal Reserve to help get the economy moving again. Chairman Bernanke rose to these challenges with an unabashed, full-throttle new round of bond buying coupled with an extension of its commitment to postpone any expected increase in short-term interest rates until 2015. The Fed fix is in.

These steps are powerful medicine, which the stock market celebrated with a nice rally. We are now within hailing distance of the Dow’s all-time high of 14,164, set five years ago on Oct. 9, 2007. As we near the five-year anniversary, we can expect to hear increasing chatter about breaking this record. That may be entertaining, but the real measure of progress will be the returns on our investments, not from stock market commentators making noises on TV as if it were New Year’s Eve.

Maybe it actually will be New Year’s Eve. With building market momentum, we might see a new high by 2013. The old problems are still here, but it is quite possible that we will see increasing investor and consumer confidence, the twin pillars of any sustained advance.

For now, investors should emphasize stocks in big-cap companies, but a firmer market tone means shaking out the reefs from our sails. More aggressive stocks include emerging markets. Many investors are familiar with “BRIC” stocks, an acronym for Brazil, Russia, India and China. Currently, all four of these present differing issues that suggest deferring additional buys of their stocks.

The new acronym is “MIST,” for Mexico, Indonesia, South Korea and Turkey. This group has a combined GDP only one quarter that of the BRIC’s. Their mobile telecommunications companies provide attractive plays on their economic and population growths.

These two offer modest dividend yields but South Korea’s SK Telecom
/quotes/zigman/16001/quotes/nls/skmSKM has a highly variable yield, currently above 6%. Turkey’s economy is the fastest growing in this group. There is, of course, an ETF (TUR) available but I find Turkcell
/quotes/zigman/291809/quotes/nls/tkcTKC more interesting. It has $5.5 billon sales from wireless operations in Turkey, Cyprus, Belarus and Ukraine. The company suspended both 2011 and 2012 dividends during a fight between two rival investor groups over control of the company. The probable resolution of this wrangling, whenever that happens, will benefit its shareholders. Resolving the wrangling here over the “fiscal cliff” and other avoidable crises like the debt ceiling would provide substantial benefits for everyone.

Story Conversation

About The Next Great Investing Columnist

MarketWatch is looking for the next great investing columnist, and running a competition to find the perfect person. The winner will receive a freelance contract to write for MarketWatch for a specified period of time. To check out the survivors’ posts and vote on them, visit our main contest page here.